S&P: Murray Energy Corp. Upgraded To 'B-', Issue Level Ratings Raised From 'D'; Outlook Stable
We also raised the issue-level rating on Murray's first-lien B-1 and B-2 term loans to 'B-' from 'D' and the second-lien notes to 'CCC' from 'D'. The recovery rating on the company's first-lien debt is unchanged at '3', indicating our expectation for meaningful (50% to 70%, lower half of the range) recovery in the event of default. The recovery rating on the company's second-lien debt is unchanged at '6', indicating our expectation for negligible (0% to 10%) recovery in the event of default.
"As a result of the execution of the new five-year collective bargaining agreement, we expect Murray to realize significant operational cost savings," said S&P Global Ratings credit analyst Vania Dimova. "We expect the company to improve adjusted EBITDA margins by 150 to 200 basis points and lower its leverage by about half a turn in the second half of 2016, as a result of cost reduction initiatives, contract buyouts, and debt restructuring."
The stable outlook reflects our view that Murray will maintain adequate liquidity in the next 12 months. We expect adjusted debt to EBITDA of about 7.0x to 7.5x and funds from operations to debt between 5.5x-6.5x in the next 12 months.
We could lower the rating if we consider Murray's liquidity position to be less than adequate. We could also lower the rating if we felt the company was dependent on favorable conditions to meet its financial obligations. This could happen if free cash flow generation slowed to a level where the April 2017 maturity could not be repaid, particularly in an unfavorable refinancing environment.
We would raise the rating if leverage declines below 5x or if there is a material improvement in the business risk profile.